WASHINGTON — Federal Reserve Chairman Ben Bernanke told Congress Thursday he didn’t pressure Bank of America into acquiring Merrill Lynch in a deal that ultimately cost taxpayers $20 billion.
Bernanke told a House committee investigating the matter that he did not threaten action against Bank of America’s CEO Kenneth Lewis or the bank’s board members if they decided to abandon the takeover.
"I did not tell Bank of America’s management that the Federal Reserve would take action against the board or management” if they decided to invoke a clause in the acquisition contract in an attempt to stop the deal, Bernanke told the House Oversight and Government Reform Committee. "Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances.”
Earlier this month, Lewis testified that his job was threatened after he expressed second thoughts about the deal. Lewis said then-Treasury Secretary Henry Paulson and federal regulators made clear that if Charlotte, N.C.-based Bank of America Corp. reneged on its promise, that he and the bank’s board members would be ousted.
Bernanke said no member of the Fed ever urged Bank of America to keep quiet about Merrill Lynch’s financial problems. Not divulging that information would have violated Lewis’ fiduciary duty to shareholders.
"Neither I nor any member of the Federal Reserve ever directed, instructed or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages or bonuses or any other related matter,” the Fed chief said.
It marked Bernanke’s first public comments since the House committee launched an investigation earlier this year into whether he or other government officials bullied Bank of America to combine the two financial powers after Lewis found out about Merrill’s financial woes.
The committee’s ranking member Darrell Issa, R-Calif., accused the Fed of having "deliberately kept other regulators in the dark regarding the negotiations with Bank of America. The Federal Reserve’s cover-up of important information and willingness to exclude key regulatory partners” such as the Securities and Exchange Commission and the Office of the Comptroller of the Currency "raises troubling questions,” he said.
Rep. Jason Chaffetz, R-Utah, said of Bernanke’s denial that he threatened Lewis’ job: "With all due respect, I’m just not buying that.”
by the associated press
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Showing posts with label Banks. Show all posts
Showing posts with label Banks. Show all posts
Friday, June 26, 2009
Thursday, June 18, 2009
Banks to pay back $68B in bailout funds update
WASHINGTON — A key government effort to ease the credit crisis reached a milestone Wednesday as 10 large banks said they had repaid a total of $68 billion in bailout funds.
Treasury said last week that the banks could begin repaying money they received under the $700 billion financial system bailout known as the Troubled Asset Relief Program, or TARP. The government created the program in October as its flagship effort to address the global credit crisis and teetering financial markets.
Meanwhile, officials hustled to prepare an announcement about the pricing of stock warrants Treasury holds — a final barrier to the banks’ ending their ties to the bailout program. The warrants allow Treasury to buy the banks’ stock at a fixed price at some future date. The banks now want to buy back those warrants.
And a congressional watchdog called for more transparency about the warrants and the repayment process.
What’s the rush?
The flurry of activity around TARP followed months of criticism from opponents of government intervention in the financial industry. It showed that some of the biggest TARP investments are winding down sooner than many had feared.
More than $70 billion has been returned to the fund. That includes Wednesday’s redemptions and about $2 billion in earlier repayments from smaller banks.
But until the banks can buy back the stock warrants Treasury holds, they remain entangled in a program that has subjected them to limits on executive pay and other restrictions. The banks have chafed against TARP from early on, fearing government-imposed rules could hurt their profits and prevent them from hiring or keeping top talent.
The warrants are hard to price because their values will fluctuate along with the banks’ stock prices. Treasury wanted more money to unwind the contracts than the banks were willing to pay.
Uncertainty surrounding the warrant sales raises questions about whether Treasury "is getting the best possible price for taxpayers,” the Government Accountability Office charged in a report released Wednesday.
The GAO also urged Treasury to create consistent rules for evaluating bank requests to buy their way out of TARP.
Wednesday marked the first repayment opportunity for the 10 large banks whose exit applications Treasury approved last week. Throughout the day, the banks announced that they had finished repaying the government money.
To begin the process of leaving TARP, the banks had to clear a series of hurdles designed to make sure they would remain viable despite the financial crisis and the recession.
by the associated press
Treasury said last week that the banks could begin repaying money they received under the $700 billion financial system bailout known as the Troubled Asset Relief Program, or TARP. The government created the program in October as its flagship effort to address the global credit crisis and teetering financial markets.
Meanwhile, officials hustled to prepare an announcement about the pricing of stock warrants Treasury holds — a final barrier to the banks’ ending their ties to the bailout program. The warrants allow Treasury to buy the banks’ stock at a fixed price at some future date. The banks now want to buy back those warrants.
And a congressional watchdog called for more transparency about the warrants and the repayment process.
What’s the rush?
The flurry of activity around TARP followed months of criticism from opponents of government intervention in the financial industry. It showed that some of the biggest TARP investments are winding down sooner than many had feared.
More than $70 billion has been returned to the fund. That includes Wednesday’s redemptions and about $2 billion in earlier repayments from smaller banks.
But until the banks can buy back the stock warrants Treasury holds, they remain entangled in a program that has subjected them to limits on executive pay and other restrictions. The banks have chafed against TARP from early on, fearing government-imposed rules could hurt their profits and prevent them from hiring or keeping top talent.
The warrants are hard to price because their values will fluctuate along with the banks’ stock prices. Treasury wanted more money to unwind the contracts than the banks were willing to pay.
Uncertainty surrounding the warrant sales raises questions about whether Treasury "is getting the best possible price for taxpayers,” the Government Accountability Office charged in a report released Wednesday.
The GAO also urged Treasury to create consistent rules for evaluating bank requests to buy their way out of TARP.
Wednesday marked the first repayment opportunity for the 10 large banks whose exit applications Treasury approved last week. Throughout the day, the banks announced that they had finished repaying the government money.
To begin the process of leaving TARP, the banks had to clear a series of hurdles designed to make sure they would remain viable despite the financial crisis and the recession.
by the associated press
Saturday, May 23, 2009
Banks could face fees to help FDIC recover
WASHINGTON — Federal regulators Friday adopted a new system of special fees paid by U.S. financial institutions that will shift more of the burden to bigger banks to help replenish the deposit insurance fund.
The move by the Federal Deposit Insurance Corp. cut by about two-thirds the amount of special fees that would be levied on banks and thrifts.
It followed protests by small and community banks — with powerful allies in Congress — against a plan adopted in February that charged premiums based on the amount of deposits. Smaller institutions insisted they would be unfairly hit though they didn’t contribute to the financial crisis.
The FDIC board voted 4-1 to approve the new fee system. It is intended to raise $5.6 billion in the face of bank failures that have depleted the insurance fund. The lone dissent came from U.S. Comptroller of the Currency John Dugan, whose agency regulates national banks.
Additional emergency assessments could come later in the year. FDIC Chairman Sheila Bair said "there’s a good probability” that another would be needed in the fourth quarter, though it wouldn’t take effect without a public comment period.
The FDIC now expects bank failures will cost the bank insurance fund around $70 billion through 2013, up from a previous assessment of around $65 billion. The fund now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.
"There will be some shifting of the burden” to major banks, Bair said. "The shift is not huge to them. We’re asking them to pay more.”
The new FDIC emergency premium, to be collected from all federally-insured institutions, will be 5 cents for every $100 of a bank’s assets minus its so-called Tier 1, or regulatory capital, as of June 30.
The FDIC’s previous planned fee, intended to raise about $15 billion, was 20 cents per $100 of a bank’s insured deposits.
A measure of a bank’s health, Tier 1 capital includes common and preferred stock as well as intangible assets such as tax losses that can be used to reduce future earnings.
Because larger financial institutions tend to rely more heavily on funding from sources other than deposits, bigger banks would end up paying a heftier portion of the new assessment.
by the associated press
The move by the Federal Deposit Insurance Corp. cut by about two-thirds the amount of special fees that would be levied on banks and thrifts.
It followed protests by small and community banks — with powerful allies in Congress — against a plan adopted in February that charged premiums based on the amount of deposits. Smaller institutions insisted they would be unfairly hit though they didn’t contribute to the financial crisis.
The FDIC board voted 4-1 to approve the new fee system. It is intended to raise $5.6 billion in the face of bank failures that have depleted the insurance fund. The lone dissent came from U.S. Comptroller of the Currency John Dugan, whose agency regulates national banks.
Additional emergency assessments could come later in the year. FDIC Chairman Sheila Bair said "there’s a good probability” that another would be needed in the fourth quarter, though it wouldn’t take effect without a public comment period.
The FDIC now expects bank failures will cost the bank insurance fund around $70 billion through 2013, up from a previous assessment of around $65 billion. The fund now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.
"There will be some shifting of the burden” to major banks, Bair said. "The shift is not huge to them. We’re asking them to pay more.”
The new FDIC emergency premium, to be collected from all federally-insured institutions, will be 5 cents for every $100 of a bank’s assets minus its so-called Tier 1, or regulatory capital, as of June 30.
The FDIC’s previous planned fee, intended to raise about $15 billion, was 20 cents per $100 of a bank’s insured deposits.
A measure of a bank’s health, Tier 1 capital includes common and preferred stock as well as intangible assets such as tax losses that can be used to reduce future earnings.
Because larger financial institutions tend to rely more heavily on funding from sources other than deposits, bigger banks would end up paying a heftier portion of the new assessment.
by the associated press
$6.1M bank mistake
WELLINGTON, New Zealand — A businessman and his girlfriend, whose bank accidentally handed them a $6.1 million credit line, have managed to flee the country with more than a third of the cash, the bank said Friday.
An international search is under way for the couple, who may have fled to Hong Kong or China.
On Friday, a New Zealand woman told the TV3 network that the couple being sought by police were her daughter Kara Yang and boyfriend Leo Gao, who were traveling with Yang’s 7-year-old daughter, Leena.
Sue Hurring said that while the situation was "stupid, bizarre,” her daughter was "honest.”
"She has never pinched a thing in her life — probably as a little girl, yes — but she is so honest, so honest,” Hurring told the network.
The New Zealand Press Association also reported the names of the couple.
Police have not identified the pair. Detective Senior Sgt. David Harvey said Interpol was investigating in Hong Kong and was also working with officials in Beijing.
Westpac Bank said in a statement Friday that the couple, who ran a gas station in the North Island city of Rotorua, had a credit limit of 100,000 New Zealand dollars ($61,000). On Thursday, the bank erroneously told reporters the limit was NZ$10,000.
In formalizing the couple’s limit — meant for the gas station the couple ran — the bank accidentally opened a line of credit for $6.1 million, according to the statement. Initial details from the bank indicated that the money had actually been deposited into their bank account.
An account holder then tried to transfer about $4 million out of the account, but the bank was only able to recover $1.7 million, the bank said. The statement did not specify how it got the money back.
by the associated press
An international search is under way for the couple, who may have fled to Hong Kong or China.
On Friday, a New Zealand woman told the TV3 network that the couple being sought by police were her daughter Kara Yang and boyfriend Leo Gao, who were traveling with Yang’s 7-year-old daughter, Leena.
Sue Hurring said that while the situation was "stupid, bizarre,” her daughter was "honest.”
"She has never pinched a thing in her life — probably as a little girl, yes — but she is so honest, so honest,” Hurring told the network.
The New Zealand Press Association also reported the names of the couple.
Police have not identified the pair. Detective Senior Sgt. David Harvey said Interpol was investigating in Hong Kong and was also working with officials in Beijing.
Westpac Bank said in a statement Friday that the couple, who ran a gas station in the North Island city of Rotorua, had a credit limit of 100,000 New Zealand dollars ($61,000). On Thursday, the bank erroneously told reporters the limit was NZ$10,000.
In formalizing the couple’s limit — meant for the gas station the couple ran — the bank accidentally opened a line of credit for $6.1 million, according to the statement. Initial details from the bank indicated that the money had actually been deposited into their bank account.
An account holder then tried to transfer about $4 million out of the account, but the bank was only able to recover $1.7 million, the bank said. The statement did not specify how it got the money back.
by the associated press
Monday, May 4, 2009
Stress-test results ignore bad bank assets
WASHINGTON (AP) — As regulators prepare to reveal how banks fared on "stress tests" — a key part of the government's plan to fix the financial system — investors seem ready to take the news in stride.
A handful of banks will likely be told to raise capital, though none will be allowed to fail.
But analysts said the industry still faces serious problems — including bad assets that are making it hard for banks to resume normal lending.
Officials will announce Thursday how the 19 largest banks fared on tests of how much they would lose if the recession unexpectedly worsened. If the test found a bank's reserves would fall below a minimum level, that bank would have to raise more capital beyond what's now required.
One way for banks to boost capital is to convert the government's existing stake in them from preferred shares — a form of debt — into common stock. But that would dilute the value of common shares and put taxpayer dollars at more risk.
Banks also could be given six months to raise money from investors. If that didn't work, the government could give them more money from the $700 billion bailout fund.
For weeks, speculation about their results worried investors and analysts. Many feared that negative findings about some banks would cause investors to sell off their stocks and destabilize the markets.
Until banks can return to normal lending, it will be hard for businesses to expand or survive a downturn. Consumers need loans to make the purchases that could revive the economy.
The markets appear soothed by official statements that the banking system is strong. Regulators have said no large institution will be allowed to fail.
Despite an Associated Press report Monday that regulators might make Wells Fargo & Co. bolster its finances, the company's stock price leapt more than 23 percent. Other banks that have been the subject of such speculation — including Cleveland-based KeyCorp and Cincinnati-based Fifth Third Bancorp — posted similar gains as the financial sector led a 214-point rally in the Dow Jones industrial average.
"Obviously, the market is not worried about (the stress tests) right now," said Robert Pavlik, chief market strategist at Banyan Partners LLC. "This is going to be seen as a giant non-event."
The government's statements have reassured investors, he said, noting that banks that need more capital will have six months to raise it. That's "plenty of time," Pavlik said.
The results will show only "modest shortfalls" for most of the 19 banks, Fox-Pitt Kelton analyst David Trone said in a research note.
But critics warned that the tests have diverted attention from a more fundamental problem: bank assets that have lost value and can't be sold.
Those assets, backed by pools of loans for construction, home mortgages and other debt, were the target of then-Treasury Secretary Henry Paulson's original bank rescue plan. When Secretary Timothy Geithner rolled out his financial stability plan in February, he proposed to buy up the same bad assets, using a combination of private funds and $100 billion from Treasury's financial bailout fund.
Because those assets lost value as loan defaults rose, investors aren't willing to pay much for them. Banks refuse to sell the assets at steep discounts. Yet as long as they remain on balance sheets, there's less money for lending.
Treasury's plan to attract private investors to buy up the banks' bad assets would leave banks with "cleaner and stronger" balance sheets, Geithner has said. But so far, the plan seems stuck in neutral. Treasury has yet to spell out exactly how it will work. And large banks, including JPMorgan Chase, have balked at participating, partly out of concern that the government will restrict executive pay.
Simon Johnson, a former International Monetary Fund chief economist now at the Massachusetts Institute of Technology's Sloan School of Business, said he doesn't know anyone in the financial world planning to participate.
In part, he said, it's "because of the potential oversight," and "banks feel no pressure to sell" because they expect the government to keep supporting them.
Meanwhile, news reports have leaked about how various banks performed on their stress tests.
Wells Fargo is one of several that regulators said would need more capital to protect against possible future losses, according to two people familiar with the matter who spoke on condition of anonymity because of the sensitivity of the process.
The initial results were given to the banks last month. Wells Fargo has until Tuesday to convince officials the results were mistaken and that it doesn't need more capital. Wells Fargo spokeswoman Julia Tunis Bernard declined to comment.
All the banks will be told Tuesday of regulators' final decisions on how much capital they need to raise. Thursday's announcement will be made by Geithner and Federal Reserve Chairman Ben Bernanke. The government will release more than 100 pages of information, according to a person briefed on the plans who requested anonymity because he wasn't allowed to discuss it publicly.
Wells Fargo holds billions of dollars in mortgage, construction and credit card loans. The stress tests treated those loans as vulnerable because borrowers would have trouble repaying their debts if the recession worsened.
Analysts expect some regional banks will need to raise capital, since their holdings are similarly tilted toward loans. KeyCorp and Fifth Third Bancorp are among them.
Bank of America Corp. and Citigroup Inc. have been disputing preliminary findings that they needed to boost capital, sources have told the AP.
Spokesmen for New York-based Citigroup and Charlotte, N.C.-based Bank of America wouldn't comment on whether they'd been asked to raise more capital.
But Bank of America spokesman Scott Silvestri called a news report that it plans to raise $10 billion "completely inaccurate." Bank of America hasn't been given a final figure from the Fed, he said.
Andrew Marquardt, a bank analyst at Fox-Pitt Kelton, said Wells Fargo's capital risk is fairly minimal.
"If indeed they need additional capital, it's going to be a fairly modest amount," he said.
by the Associated press
A handful of banks will likely be told to raise capital, though none will be allowed to fail.
But analysts said the industry still faces serious problems — including bad assets that are making it hard for banks to resume normal lending.
Officials will announce Thursday how the 19 largest banks fared on tests of how much they would lose if the recession unexpectedly worsened. If the test found a bank's reserves would fall below a minimum level, that bank would have to raise more capital beyond what's now required.
One way for banks to boost capital is to convert the government's existing stake in them from preferred shares — a form of debt — into common stock. But that would dilute the value of common shares and put taxpayer dollars at more risk.
Banks also could be given six months to raise money from investors. If that didn't work, the government could give them more money from the $700 billion bailout fund.
For weeks, speculation about their results worried investors and analysts. Many feared that negative findings about some banks would cause investors to sell off their stocks and destabilize the markets.
Until banks can return to normal lending, it will be hard for businesses to expand or survive a downturn. Consumers need loans to make the purchases that could revive the economy.
The markets appear soothed by official statements that the banking system is strong. Regulators have said no large institution will be allowed to fail.
Despite an Associated Press report Monday that regulators might make Wells Fargo & Co. bolster its finances, the company's stock price leapt more than 23 percent. Other banks that have been the subject of such speculation — including Cleveland-based KeyCorp and Cincinnati-based Fifth Third Bancorp — posted similar gains as the financial sector led a 214-point rally in the Dow Jones industrial average.
"Obviously, the market is not worried about (the stress tests) right now," said Robert Pavlik, chief market strategist at Banyan Partners LLC. "This is going to be seen as a giant non-event."
The government's statements have reassured investors, he said, noting that banks that need more capital will have six months to raise it. That's "plenty of time," Pavlik said.
The results will show only "modest shortfalls" for most of the 19 banks, Fox-Pitt Kelton analyst David Trone said in a research note.
But critics warned that the tests have diverted attention from a more fundamental problem: bank assets that have lost value and can't be sold.
Those assets, backed by pools of loans for construction, home mortgages and other debt, were the target of then-Treasury Secretary Henry Paulson's original bank rescue plan. When Secretary Timothy Geithner rolled out his financial stability plan in February, he proposed to buy up the same bad assets, using a combination of private funds and $100 billion from Treasury's financial bailout fund.
Because those assets lost value as loan defaults rose, investors aren't willing to pay much for them. Banks refuse to sell the assets at steep discounts. Yet as long as they remain on balance sheets, there's less money for lending.
Treasury's plan to attract private investors to buy up the banks' bad assets would leave banks with "cleaner and stronger" balance sheets, Geithner has said. But so far, the plan seems stuck in neutral. Treasury has yet to spell out exactly how it will work. And large banks, including JPMorgan Chase, have balked at participating, partly out of concern that the government will restrict executive pay.
Simon Johnson, a former International Monetary Fund chief economist now at the Massachusetts Institute of Technology's Sloan School of Business, said he doesn't know anyone in the financial world planning to participate.
In part, he said, it's "because of the potential oversight," and "banks feel no pressure to sell" because they expect the government to keep supporting them.
Meanwhile, news reports have leaked about how various banks performed on their stress tests.
Wells Fargo is one of several that regulators said would need more capital to protect against possible future losses, according to two people familiar with the matter who spoke on condition of anonymity because of the sensitivity of the process.
The initial results were given to the banks last month. Wells Fargo has until Tuesday to convince officials the results were mistaken and that it doesn't need more capital. Wells Fargo spokeswoman Julia Tunis Bernard declined to comment.
All the banks will be told Tuesday of regulators' final decisions on how much capital they need to raise. Thursday's announcement will be made by Geithner and Federal Reserve Chairman Ben Bernanke. The government will release more than 100 pages of information, according to a person briefed on the plans who requested anonymity because he wasn't allowed to discuss it publicly.
Wells Fargo holds billions of dollars in mortgage, construction and credit card loans. The stress tests treated those loans as vulnerable because borrowers would have trouble repaying their debts if the recession worsened.
Analysts expect some regional banks will need to raise capital, since their holdings are similarly tilted toward loans. KeyCorp and Fifth Third Bancorp are among them.
Bank of America Corp. and Citigroup Inc. have been disputing preliminary findings that they needed to boost capital, sources have told the AP.
Spokesmen for New York-based Citigroup and Charlotte, N.C.-based Bank of America wouldn't comment on whether they'd been asked to raise more capital.
But Bank of America spokesman Scott Silvestri called a news report that it plans to raise $10 billion "completely inaccurate." Bank of America hasn't been given a final figure from the Fed, he said.
Andrew Marquardt, a bank analyst at Fox-Pitt Kelton, said Wells Fargo's capital risk is fairly minimal.
"If indeed they need additional capital, it's going to be a fairly modest amount," he said.
by the Associated press
Thursday, April 23, 2009
Bank's have stress , however the Stock market does not
NEW YORK — Investors set aside some of their worries about banks and the economy Friday after the government unveiled its methods for testing the health of banks.
The Federal Reserve report was light on details, but didn’t bring any bad news. Investors were also pleased about quarterly results from Ford Motor Co., American Express Co. and Microsoft Corp.
That cleared the way for a 119-point gain in the Dow Jones industrial average, leaving it down slightly for the week.
The Dow and the S&P 500 broke their six-week winning streak, but the Nasdaq extended its string of weekly gains to seven.
The Fed, in outlining the tests’ methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.
Separately, bank executives were briefed on their test results in meetings across the country. By law, the banks cannot publicize the results without the government’s permission, but Wall Street buzzed with anticipation and most financial stocks rose.
The day was not without volatility, however. After the Fed’s release, the stock market at times gave up huge chunks of gains before finishing solidly higher. Financial stocks, were leading the way.
The Dow rose 119.23, or 1.5 percent, to 8,076.29, after rising by as many as 170 points. For the week, the Dow slipped 0.7 percent, the S&P 500 dipped 0.4 percent, and the Nasdaq rose 1.3 percent.
Steve Sachs, director of trading at Rydex Investments, in Rockville, Md., said market has held up well during a week in which about a quarter of the companies in the S&P 500 index have released earnings, including the major banks.
"We are looking for the signs of economic recovery,” he said. "The market clearly is comfortable that it sees the signs of economic stability that it needs to see.”
by the associated press
The Federal Reserve report was light on details, but didn’t bring any bad news. Investors were also pleased about quarterly results from Ford Motor Co., American Express Co. and Microsoft Corp.
That cleared the way for a 119-point gain in the Dow Jones industrial average, leaving it down slightly for the week.
The Dow and the S&P 500 broke their six-week winning streak, but the Nasdaq extended its string of weekly gains to seven.
The Fed, in outlining the tests’ methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.
Separately, bank executives were briefed on their test results in meetings across the country. By law, the banks cannot publicize the results without the government’s permission, but Wall Street buzzed with anticipation and most financial stocks rose.
The day was not without volatility, however. After the Fed’s release, the stock market at times gave up huge chunks of gains before finishing solidly higher. Financial stocks, were leading the way.
The Dow rose 119.23, or 1.5 percent, to 8,076.29, after rising by as many as 170 points. For the week, the Dow slipped 0.7 percent, the S&P 500 dipped 0.4 percent, and the Nasdaq rose 1.3 percent.
Steve Sachs, director of trading at Rydex Investments, in Rockville, Md., said market has held up well during a week in which about a quarter of the companies in the S&P 500 index have released earnings, including the major banks.
"We are looking for the signs of economic recovery,” he said. "The market clearly is comfortable that it sees the signs of economic stability that it needs to see.”
by the associated press
Tuesday, April 21, 2009
Health of banks worries Wall Street
WASHINGTON — Anxiety is growing again over the health of the nation’s largest banks, and with Congress hesitant to commit more money, the Obama administration is exploring ways to strengthen them in the face of an unrelenting recession.
Results of the federal government’s "stress tests” on big banks are due May 4, and Wall Street is increasingly worried they will show some banks are in worse shape than expected.
The renewed bank fears drove the stock market down on Monday in its worst showing in six weeks.
Bank of America stock lost nearly a quarter of its value, and the Dow Jones industrial average fell almost 290 points.
Bank of America reported a first-quarter profit of $2.8 billion, joining other banks whose earnings reports have looked positive at first blush. But some analysts say accounting steps are concealing the depth of the financial industry’s woes.
19 banks face tests
The banks have been helped by income from trading and cheap borrowing, but they are still struggling with bad debt, said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.
Investors are "looking at bank numbers and are saying they are not that great,” he said.
Among the ideas being explored by the administration is converting the government’s loans into equity stakes, which would improve the banks’ bottom lines by increasing their capital reserves.
The Treasury Department will outline Friday how it plans to structure the stress tests, which aim to gauge the health of 19 big banks.
So far, investors have been too optimistic about the results, warned Jaret Seiberg, a financial services policy analyst at Washington Research Group.
"What we’re seeing is a re-evaluation of those positions,” he said. "Until we have finality on what the stress tests will tell us, the markets will be very jittery about the banks.”
Results of the federal government’s "stress tests” on big banks are due May 4, and Wall Street is increasingly worried they will show some banks are in worse shape than expected.
The renewed bank fears drove the stock market down on Monday in its worst showing in six weeks.
Bank of America stock lost nearly a quarter of its value, and the Dow Jones industrial average fell almost 290 points.
Bank of America reported a first-quarter profit of $2.8 billion, joining other banks whose earnings reports have looked positive at first blush. But some analysts say accounting steps are concealing the depth of the financial industry’s woes.
19 banks face tests
The banks have been helped by income from trading and cheap borrowing, but they are still struggling with bad debt, said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.
Investors are "looking at bank numbers and are saying they are not that great,” he said.
Among the ideas being explored by the administration is converting the government’s loans into equity stakes, which would improve the banks’ bottom lines by increasing their capital reserves.
The Treasury Department will outline Friday how it plans to structure the stress tests, which aim to gauge the health of 19 big banks.
So far, investors have been too optimistic about the results, warned Jaret Seiberg, a financial services policy analyst at Washington Research Group.
"What we’re seeing is a re-evaluation of those positions,” he said. "Until we have finality on what the stress tests will tell us, the markets will be very jittery about the banks.”
by the associated press
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